Wednesday, December 5, 2012

In all probability, the tax load on higher income Americans is going up. It's simply the reality of the current fiscal situation. However, before we go too far with the "they should pay their fair share" argument, let's look at what higher income Americans already pay today. My numbers are based on IRS data for 2009 tax returns, which is the most recent that they have posted on their web site.

Let's do some math...

Americans who filed income tax returns in 2009 with adjusted gross income of $75,000 or more made up a little over 20% of all returns (29 of 140 million returns). That group paid $727B or 84% of all income taxes paid. In other words, 1 out of every 5 income tax filers paid 5 out of every 6 income tax dollars. The other 4 out of 5 filers paid only 1 dollar out of 6. Push the dividing line to an AGI of $100k and it ends up being 12.5% of filers pay $646B / 75% or 1 of every 8 tax filers paid 3 of every 4 dollars in income taxes. That's where any income tax revenue increase, by definition, has to come from.

The ugly reality of the fiscal corner we've been painted into by decades of irresponsible federal spending is that taxing higher income Americans is inevitable. Lower income taxpayers simply don't make enough to make a difference even if we all paid higher tax rates. Let's look at the numbers from the other direction.

Filers who had AGI of under $50k made up 66% of all returns but paid only $61B in taxes or 7% of income taxes paid. Filers with an AGI of under $75k made up 79% of all returns but paid only $139B or 16% of taxes paid. Using a cut off of $75k as an example, you could increase tax rates by 10% on everyone under $75k per year in AGI and only generate another $14B in taxes, not enough to even make a dent in the deficit reduction target of $500B that we need. You might as well leave rates alone on lower income tax brackets because it won't make a difference anyway (at least not as it relates to deficit reduction).

Higher income Americans will just have to carry more of the burden, as they do already. Before we vilify people for having the audacity to dare be successful, maybe we should thank them first for paying the bills.